State forecasters see modest economic growth next year, but warning signs ahead

By Peter HancockCapitol News Illinois

Thursday

Feb 28, 2019 at 9:09 PMFeb 28, 2019 at 9:58 PM

SPRINGFIELD — The state of Illinois can expect to see moderate economic growth in the upcoming fiscal year that will lead to higher tax receipts for the state. But there are warning signs on the national horizon that could signal an economic downturn in 2021.

That was the message Thursday from Marty Johnson, the acting chief economist at the Illinois Department of Revenue, who briefed House committee members on what they can expect to see in state revenues over the next 16 months.

“We just finished up a banner year for the national economy,” Johnson said. “In 2018, (economic) output was expanding at the fastest pace since 2005. Unemployment was at a 49-year low. Consumer spending was robust.”

And while Illinois has lagged behind the nation in a number of categories, Johnson said the state has experienced growth, particularly in personal income and in some employment sectors, such as manufacturing and construction.

Those trends are expected to continue into the 2019-2020 budget year, which begins July 1, with overall tax receipts growing about 4.3 percent, to $33.5 billion. And that will give lawmakers a little extra breathing room when they start cobbling together next year’s budget.

The bulk of that growth is expected to come from what state officials call “the big three” sources of revenue — individual and corporate income taxes, and sales taxes.

Individual income taxes are expected to grow about 3.3 percent, to $18.8 billion. Johnson said that’s mainly due to wage and salary growth, which is driven by a relatively low unemployment rate. Only a small amount of that will come from the state’s new, higher minimum wage, which takes effect Jan. 1, 2020, midway through the fiscal year.

Personal income growth is also expected to drive up sales tax receipts, which are expected to grow by 3.7 percent, to just over $8.5 billion.

State corporate income taxes, meanwhile, have not been affected by recent changes in federal tax law as much as forecasters had expected, Johnson said. As a result, those receipts are expected to grow nearly 6 percent, to $2.3 billion, the result of what forecasters believe will be higher corporate earnings in the coming fiscal year.

All of that is the result of a continuing national economic expansion, which Johnson said is nearly the longest on record. But she said there is also reason to believe that expansion might not continue for long.

“This particular expansion has been one of the most anemic that we’ve witnessed in this country since we have had economic recessions,” she said.

Among other things, she said, the federal tax cuts that went into effect in 2018 gave a short-term boost to the national economy. But she said that stimulus effect is expected to dissipate in the upcoming year.

Rep. Steven Reick, a Woodstock Republican, responded by saying a downturn in the national economy would be bad news for Illinois.

“We all know that when the United States gets a cold, Illinois gets pneumonia,” he said.

But Revenue Department Director David Harris, a former legislator, said there have been many trends in the current economic recovery that don’t fit normal patterns, such as the fact that wages have not grown as much as the historically low unemployment rate would suggest. As a result, he said he is not sure economists should rely on traditional indicators of future economic trends.

“I’m not sure a lot of folks know what normal is anymore,” Harris said. “There are so many topsy-turvy markers that don’t seem to apply.”

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